Baer and Rendall

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Baer and Rendall
2014-03-20 13:00:28
Legal & Historical Cases
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  1. Types of insurance carriers
    • Individual underwriters (Lloyd’s of London): don’t act as insurer, no liability on policies. Similar to stock exchange, except exclusive (no public participation). 
    •    Names (UW members) are the only ones entitled to accept risks
    •    Subscribers act as brokers and place risks with UW members
    •    Associates (lawyers, adjusters, actuaries) perform services
    • Joint stock companies: for profit, composed of stockholders, controlled by officers and board of directors. Stockholders contribute to capital and receive dividends
    • Mutual insurance carriers: corporate enterprises owned by customers; some profit is returned as dividend, rest is reserves
    • Reciprocals or inter-insurance exchanges: organization of individuals who have joined together for the exchange of insurance. No participant can take out insurance unless he offers insurance in return. Members are individually, not jointly liable
  2. Reasons for different insurance legislation
    Uncontrolled price competition in the short term is not in the public’s long term interest: results in insurers collecting less premium than necessary, leading to bankruptcy. This justifies an exemption from anti combines legislation.
  3. Rating bureaus
    • expressly authorized and regulated by provincial government to cooperate in the determination of adequate premium
    • most provinces have designated IBC for this purpose
    • although many insurers follow the bureaus’ rating advice, they are not legally compelled to do so
    • bureaus also have the mandate to fix or promulgate the terms or conditions of insurance contracts (and therefore there is no competition on policy terms)
  4. Superintendent
    • given limited power to control premium rates and unfair and deceptive acts and practices in some provinces
    • in all provinces auto policies must be approved by Superintendent
  5. Picture of Canadian Market
    • concentration no greater than other economic areas
    • Canadian companies account for 40% of the market
    • foreign companies are predominantly American
  6. Objectives of IBC
    • provide a forum for discussion of general insurance
    • collect, collate and analyze actuarial and statistical information
    • study legislation and legislative proposals
    • engage in research and pilot programs and projects with a view of providing a high level of service to the public
    • engage in activities to promote a better public understanding of the insurance business
  7. 5 areas of focus for Canadian insurance regulation
    • guarantee financial solvency of insurers
    • promote Canadian ownership and investment in Canada
    • creation of tax revenue
    • promote marketing integrity and improve insurance contract
    • promote honesty and competence of insurance intermediaries
  8. Reasons for solvency regulation
    • several insolvencies in the 1860s shook public’s confidence
    • legislators perceived that aggressive short-term price competition isn’t in public interest
    • most life insurance was permanent, and even P&C involves management of large pools of prepaid premium (fiduciary nature of business)
  9. Methods to promote solvency
    • control creation of domestic insurers
    • licensing of foreign insurers
    • periodic filing of information
    • governmental power of enforcement
    • creation of rating bureaus and in some provinces administrative boards
  10. Regulation by type of insurance
    • fire insurance: provincial statutes provide statutory conditions which must be part of every insurance contract (no variation is allowed)
    • other P&C: insurers often apply the statutory conditions from fire part
    • life insurance: no mandatory conditions, instead directly prohibit certain practices and grant certain rights
    • accident and sickness: combines features from life and P&C
  11. 3 levels of insurance regulation
    • legislation
    • regulation made by the Lieutenant Governor in Council
    • guidelines and directives issued by the Superintendents
  12. Guidelines vs legislation or formal regulation
    • guidelines can more readily be used to mask fundamental disagreement; they give the appearance of a solution while tolerating inconsistent behaviour 
    • more flexible
    • less obtrusive if voluntary; insurers are usually willing to comply to avoid formal law
    • less likely to be misinterpreted by the courts; they are not seen as giving rights to public, and are therefore less likely to be subject to litigation; can be easily amended
  13. Social vs private - differences
    • social is universal while private is risk selecting
    • private legislation focuses on protecting the public from gaming, unnecessary for social
    • state is carrier for social, so no need for elaborate rules to guarantee carrier’s solvency
    • all intermediaries are civil servants in social insurance, so different kind of administrative or judicial supervision applies
  14. Social vs private - similarities
    • protect integrity of the insurance fund and prevent double recovery
    • problem to define covered events
    • difficulty in establishing fair and efficient claims process and loss valuation system
  15. Marine vs non-marine insurance
    • common notions include insurable interest, subrogation, contribution, materiality, …
    • unique marine doctrines include general average, constructive total loss, abandonment
    • marine insurance historically was developed based on British laws
  16. Indemnity vs non-indemnity insurance
    • indemnity: amount recoverable is measured by the extent of the insured’s pecuniary loss. Insured must prove:
    •    the happening of some event by which liability arises
    •    the loss occasioned to the insured by the happening of such event
    • non-indemnity: payable whenever the specified event happens, irrespective of whether the insured in fact sustains a pecuniary loss or not
  17. Glynn v. Scottish Union
    • facts: injured in auto accident from negligence of Sutherland, who had joined his insurer as a third party. Then Glynn brought action against his insurer for medical expense
    • defendant’s argument: plaintiff had already recovered his expenses from Sutherland
    • outcome: plaintiff succeeded at trial
    • appeal: whether insurer could (via doctrine of subrogation) claim benefits from Sutherland’s payment to prevent double recovery; plaintiff action was dismissed
    • decision details: only applies to contract of indemnity; whether or not a contract is a contract of indemnity should be determined by the exact nature of the contract rather than by conveniently categorizing contracts; Section B is a contract of indemnity as long as the insured must prove the occurrence of the accident and the resulting financial loss, and that even though Section B uses the wording to pay instead of to indemnify as in Sections A and C (it makes more sense in the context since section B covers passengers)
  18. William Waters & Barnabas Steel v. Monarch Fire & Life Ass’ce Co.
    • facts: commercial policy stated it would pay insured in case of loss by fire in warehouse. A fire damaged goods in trust.
    • plaintiff’s argument: policy didn’t mention whether it’s the insured’s or any loss by fire
    • outcome: insured was entitled to apply part of the insurance money to cover his own loss and should hold the balance as trustee for the owner of the goods
  19. Valued policy
    • contract where the insurer and insured agree on a predetermined value for the property. In the event of loss the obligation to prove the facts of the loss remain, so the contract can be of indemnity
    • different from contract providing a fixed or calculable payment in case of some contingent event regardless of loss, in which case the contract is not of indemnity
  20. Regal Films Corporation Ltd v. Glens Falls Insurance Company
    • facts: plaintiff had a policy covering loss by fire, lightning, windstorm, etc. headed “inland marine policy”. Fire claim was resisted on the ground that the plaintiff had not furnished proof of loss within the 60 days stipulated in the policy.
    • outcome: plaintiff succeeded: the policy comes under Part IV of The Insurance Act, so the claimed proof of loss conditions is inconsistent with statutory condition no. 15 (no time limit, “as soon as practicable”). Fire risk is in no way incidental to some general insurance in respect of some other risk not coming within Part IV. Appeal was dismissed
  21. Group insurance
    • designed to insure classes of persons rather than specific individuals
    • lives insured are not named or otherwise identified
    • contract is between the insurer and the sponsor (usually the employer)
    • usually open-ended contract covering new employees automatically
    • different from subscription policies, which are large commercial risks underwritten by a number of insurers under one policy to which each insurer is a party
  22. 4 approaches to subrogation
    • election: injured chooses between tortfeasor or collateral sources
    • cumulation: allow injured to retain both
    • reimbursement: tortfeasor pays full amount, excess is credited to collateral source after making the plaintiff whole
    • relieving the tortfeasor: reduce tortfeasor’s overall liability by the amount of the collateral benefit
    • all but the second option prevent double recovery (no profit from loss).
    • only the fourth relieves the tortfeasor of some or all his liability
    • third and fourth option raise the question of which is primary and which is secondary payer.
  23. Fletcher v. Manitoba Public Insurance Corp. (MPIC)
    • facts: plaintiff had requested “maximum coverage” from his broker after moving to Manitoba, but found out after an accident that he wasn’t covered for uninsured motorist accidents. When he received his flyers he though the “NOT APPLIC” mention next to UMC was because he was covered. Question is concerning the responsibility of a government insurer to inform its customers about the types of coverages.
    • outcome: plaintiff succeeded; judge found appellants in negligence; appeal dismissed
    • decision details: Mr. Fletcher was entitled to rely upon the respondent. Judge found that had UMC been offered to the plaintiff, he would have purchased it
    • issues raised:
    •    did the ON Court of Appeal err in departing from judge findings? yes
    •    does a government-owned insurer have a duty to advise its customers of UMC? yes because there is a duty of care and this case is within the scope of the duty; the scope of the duty isn’t as thorough as a broker, but includes the duty to inform the customer about the range of coverage available
    •    if it has such a duty, did it fulfil it? no, there wasn’t sufficient communication
    •    if not, is it liable for the appellant’s loss? yes
  24. Determination of a duty of care
    • is there reliance?
    • is the reliance reasonable?
    • is the reliance expected?
  25. Broadhurst & Ball v. American Home Assurance Co.
    • facts: American Home provided primary professional liability coverage, and Guardian provided excess coverage. Claims alleging conspiracy, breach of fiduciary duty and negligence occurred. American Home acknowledged its obligation to defend, but Guardian denied on the basis that the respondents knew about the claims at the time of application
    • outcome: plaintiff succeeded; Guardian had to share the cost of defence
    • decision details: claims are covered, subject only to the terms of exclusionary provision relating fraud or dishonesty; Guardian has an obligation to defend; Guardian is not obliged to share defence costs in proportion
    • issues raised: 
    •    coverage issue: whether claim actually is covered - yes, insurer has no proof that insured had a prior knowledge of the claims
    •    obligation to defend issue: whether excess insurer has obligation to defend when primary has duty to defend - yes
    •    allocation of defence costs issue: if cost should be split, and if yes in what proportion - yes it should be split even though there is no contractual obligation; Guardian is plainly at risk and can’t use American Home as windfall to be discharged in this potentially lengthy and costly trial. In the principle of equity and good conscience, the insurers should evenly split the defence costs
  26. Dillon v. Guardian Insurance Co.
    • facts: Mr. Dillon injured a kid with his car and was insured by Guardian for $50,000. The plaintiff sued Mr. Dillon for $100,000, but offered a $45,000 settlement before the trial. Guardian refused, Mr. Dillon was found 100% liable for damages of $78,000. Guardian refused to pay more than the policy limit
    • outcome: plaintiff succeeded, Guardian must reimburse damages above limit
    • decision details: it was argued that whenever an insurer receives an offer to settle within the limits and rejects it, it should be liable in every case for the amount of any final judgement, whether or not within policy limits. Arguments for absolute liability:
    •    avoids burden of proof of whether the offer is reasonable
    •    eliminates the risk that the insurers gambles with insured’s money
    •    fairer that the insurer suffers the detriments of the decision since it would be the one benefiting from a favourable outcome. 
    • there was also an overwhelming probability that Dillon would be found 100% at fault
  27. Standards of liability
    • absolute liability
    • liability for failing to act reasonably
    • liability for bad faith